Navigating Global Trade Architecture & Lessons from South Korea

On 28 May 2018, the Perth USAsia Centre hosted former South Korean Trade Minister Professor Taeho Bark for a private roundtable discussion. The discussion focused on the economic miracle that is South Korea’s post-Korean War development, the current turbulence in the global trading system, and what strategies the Republic of Korea, Australia and other trade-exposed nations could adopt to support open markets and trade liberalisation.

The Perth USAsia Centre hosted Professor Bark as part of the Perth USAsia Centre’s Trade Week, which included a public panel with the Department of Foreign Affairs and Trade, a policy-generating trade strategy session with government and business leaders, and a private roundtable discussion with former US Ambassador to Singapore, Ambassador Frank Lavin. The issues discussed at the Professor Bark roundtable are developed below.

Open Trade and Korea’s Economic Miracle

In 1960, less than a decade after the signing of the Korean War Armistice Agreement, GDP per capita income in the Republic of Korea stood at US$158.2. In 1970, the figure was US$279.12. Before the 1997 Asian Financial Crisis, this figure had risen remarkably to $US13,138 and in 2016, following recovery from the Global Financial Crisis, was at $US27,539. South Korea, with a population of just over 50 million people, now stands as an advanced G20 economy and an Indo-Pacific middle power.

Korea is a world-leader in the production and export of automobiles, integrated circuits, passenger and cargo ships and advanced component parts.

Korea is a world-leader in the production and export of automobiles, integrated circuits, passenger and cargo ships and advanced component parts. Resource scarce, Korea leads as a supplier of refined petroleum. How did this post-war agrarian economy, lacking resources and an industrial base, divided from its northern adversary, rise from poverty to affluence?

Professor Taeho Bark during his foreign policy roundtable discussion on South Korea's post-Korea war recovery.

The key factor in Korea’s industrial development and economic expansion has been its integration into the liberal international trading system. Adopting a continued policy of trade-focused development, Korea entered into the General Agreement on Tariffs and Trade in 1967, was a founding member of the World Trade Organisation in 1995 and now has 15 bilateral free trade agreements in effect (the third nation in the world for FTA-Global GDP coverage). In 1960, Korea’s trade counted for 14% of its GDP, 32% in 1970, 65% in 1980 and a high of 110% in 2011.

Australia and Korea, both successful trading nations, have complementary economic models and a strong trade and investment partnership. Enhanced by the 2014 Korea-Australia Free Trade Agreement, Australian resource exports to Korea and Australian imports of Korean automobiles, ships and refined products underpin the commercial relationship. This advanced partnership is exemplified by Shell’s Prelude FLNG, the multi-billion dollar Korean-built Floating LNG facility, which will produce over 5.3 millions of tonnes per annum of liquids (3.6 mtpa LNG) off Western Australia’s northwest and provide a secure energy supply back to Korea and North Asia.

Further growth opportunities are emerging in the Indo-Pacific, as growth markets integrate into regional supply chains and developing economies become major economic powers. Korea’s trade policies and trade relationships have appropriately adapted to these geo-economic trends. In relative terms, trade with the US and Europe has declined over recent decades, while trade with Japan, China and Southeast Asia has increased. Seeking to increase foreign direct investment inflows and diversify market opportunities, Korea sees outbound opportunities for its large conglomerates and SME’s in the growth markets of India (FTA in effect since 2010), Indonesia (FTA under negotiation), South America (FTA negotiations with Mercosur Bloc to begin) and Africa.

Korea will soon formally decide whether to join the TPP-11’s revived Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), as it weighs up the long-term strategic benefits the CPTTP provides with the onset of further competition from Japanese industrial manufacturing.

Trade Policy in a Time of Turbulence

While Korea is seeking to diversify its trade partnerships through bilateral, regional and multilateral approaches, Korea’s leadership and businesses are attempting to navigate the significant headwinds confronting the international trading system. While the prospects of direct trade confrontation between the trade assertive Trump Administration and China at the very least undermine global confidence, Korea has been the subject of punitive measures by both the Trump Administration and its giant northern neighbour. A clear path forward is geopolitically complicated by recent significant developments on the Korean Peninsula.

China, growing in regional clout and strategic assertiveness, is willing to utilise its internal economic controls for external influence. The Korean economy, whose conglomerates are heavily integrated into the Chinese market, suffered billions of dollars in losses as a result of unofficial trade measures and industrial pushback stemming from the US deployment of the Terminal High Altitude Area Defence (THAAD) missile shield in Korea.

While the legality of both nations’ punitive measures against South Korea are likely to remain under question, but not formally be disputed at the World Trade Organisation (WTO), broader concerns grow as to the health of the international trade law system in the wider international rules-based order.

The WTO and the Multilateral Trading System

As one of the great beneficiaries of the post-World War II liberal trading regime, Korea has an active policy to work with Australia and other like-minded nations to revitalise the multilateral trading system. The WTO is under great strain: The Doha Development Round collapsed in 2015, the body’s 164 Member States were unable to agree on a joint statement at the December 2017 Ministerial Meeting, and judicial appointments to the organisation’s Dispute Settlement and Appellate Body have been vetoed by the Trump Administration. Revitalising reforms of the WTO could include enhanced methods for ‘plurilateral agreements’ to be struck from within the WTO structure.

A functional WTO is essential to rebuild broad public support for free trade and free trade’s role in global development, as well as to organise sustainable trade policy responses to reduce global inequality. As Professor Bark, in his January 2013 candidate address to the General Council of the WTO, said:

“…development means, first, raising standards of living, as set out in the Preamble to the WTO Agreement. Development must improve the welfare of all people, not just particular sectors or industry groups. To some countries development means joining and moving up in the global value chain, and to others, stabilising their financial systems. To many countries, it still means lifting them out of poverty. The WTO can contribute to achieving all of these concepts of development through greater trade opportunities, capacity building, and predictable rules.”